SAFFRONART

Bidding for Success

RAKTIM CHOUDHURY 1501035

ANAND JS 1501066
AKKHIL SHAN 1501063

Saffronart
Success

::

Bidding

for

What created the opportunity for Saffronart?

Saffronart started as a part of the SaffronPlanet.com, set up by the owners, Dinesh & Minal
Vazirani with Venture Capital funding. The initial objective was to provide high-end,
exclusive art, fashion and health products from India to a global audience.
In the early days of chaotic rapid ramp-up of business led to a lack of focus and control. The
strategic objective of the firm was too broad and too loosely defined to have a planned
strategy for implementation. For this reason, the Vazirani-s dropped the lifestyle and
healthcare divisions from their business portfolio and decided to deal only in the Indian
modern art market. This decision was partially because both the co-founders had studied art
in college and had a deep connection with it.
However, the true motive for pursuing the concept of an online art gallery/auction house was
driven by a very clear opportunity that Minal & Dinesh Vazirani spotted in the Indian market.

The category for modern Indian art was not clearly defined. There were no auctions or
exhibitions by any major auction house or gallery that was completely devoted to
modern Indian art.
The Indian art market was highly unstructured. The gallery-artist relationship, in the
primary market, was not very strong. Galleries seldom developed expertise on
specific arts and they failed to provide consistent support in bringing buyers and
sellers together.
The secondary Indian art market focussed mainly on Mughal miniature paintings and
other antiquities or colonial style paintings. This market had little regard for modern
Indian art and treated it mostly as decorative art rather than fine art. Modernist art was
not perceived by the secondary market as of any value.
Access to the best works of reputed artists was also very difficult. The primary market
buyers, the galleries, were very cautious and wary of auction houses potentially
bypassing them to establish ties directly with artists. This prompted them to restrict
accessibility. Strong personal connections had to be established with the gallery
owners, for collectors or auction houses to get access to the best art works.
Authenticity of the art works was another issue. Neither the existing galleries nor the
auction houses provided any guarantee of authenticity of the art-works. There was
sporadic buying and selling of art and with the low level of expertise of the galleries,
the authenticity of the art was always questionable.
Indian fine art had a minimal presence in the international art market. The Indian
modern art was largely seen as of colonial western style and the modernist Indian art
was not recognized to have an original essence of its own. Whatever international
transactions of Indian art used to happen, was mostly driven by Non-Residential
Indians.
Lack of steady revenue stream.
The players in the market had no transparency in their business dealings. There was
no established price setting mechanism. Prices for same art varied widely across
galleries. Indian art did not enjoy the kind of price stability and predictability that the

western art enjoyed. There was no benchmark to compare against and the market was
highly fragmented.
The target of Dinesh and Minal was to use Saffronart to create a venture that can
consolidate and lead the market for modern Indian art by enhancing accessibility to high
quality art, ensuring their authenticity and bringing about a transparent price setting
mechanism.
They also saw an opportunity for Indian art in the international market. Over this, post
economic liberalization, the Indian art market had not taken off the way it should have.
Thus the Vazirani duo sensed a huge opportunity of creating a market for Indian fine arts
and lead the growth surge.

Art Market Potential

(in million USD)
30000
25000
20000
15000
10000
5000
0
2002

2003

2004

2005

2006

2007

2008

Germany 11%

UK 15%

France 17%

India

2009

2010

2011

2012

US 10%

Did Saffronart adopt the right Business Model?

The objective of Saffronart was to give buyers access to the authentic works of the best
Indian artists through a transparent price setting mechanism. The industry being fragmented
was riddled with challenges and the Vazirani-s rose up to address each of those.

Customer Base:
When Saffronart started off, the viability of on-line auction model in the Fine Arts space was
far from clear. It was a big concern if the customers would agree to spend thousands of
dollars to buy something as subjective as art over the internet. The founders realized that to
boost confidence, the customers needed to see the paintings themselves. With this objective,
they set about organizing a series of exhibitions across New York, Los Angeles and Hong
Kong before their initial auctions. Subsequently they established permanent galleries in
Mumbai, New York and London for putting lots on display, before taking them to auction.
This way, when they were bidding online, the buyers had no doubt about the quality and
authenticity of the art. The galleries at New York, Mumbai and London also helped to build
an international customer base for Saffronart.

The second major challenge that Saffronart faced was that the customer segment for modern
Indian art was very small. The genre was not well known and not well understood in the
world and also in India. The initial customers were mostly from two groups: Indians living in
India and NRIs (Non-Residential Indians). So Minal and Dinesh not only had to go about
building a reputation for honesty and professional integrity in a market that was infamous for
its lack of transparency, but they also had to educate potential customers about Indian art. In a
way they acted as brand ambassadors of the Indian fine arts market.
Minal & Dinesh expended considerable time, effort and money in creating detailed, high
quality auction catalogues. The catalogues had high resolution pictures of the art, along with
basic details of the work, a short biography of the artist and excerpts from critical reviews of
his/her work. These catalogues went a long way to stimulate interest in the Indian fine arts
market.

Sourcing:
Gaining access to the best selection of Indian art was not easy, especially for a new entrant.
There was a lot of hesitation on part of the collectors, dealers and galleries to tie up with an
online start-up firm like Saffronart. There were no formal contracts for sourcing and all
transactions were driven by personal relationships.
The most critical issue on the sourcing side was trust. The galleries and consignors were also
very concerned that Saffronart might bypass them and establish direct contact with the artists.
Also there were concerns among competing consignors that Saffronart might not market
everyones work equally.
Saffronart was very patient and build sourcing connections one by one through personal
interactions. They partnered with only the best and most reputed galleries. They accepted
paintings after checking their provenance and being convinced of its authenticity.

Price Setting:
Saffronart became the pioneer in bringing price transparency to the Indian art market.
Reservation prices were set after carefully considering several parameters such as reputation
of the artist, series to which the painting belongs, recent history of prices of comparable
paintings.
This transparency was a breakthrough in the Indian art market and also made it more
attractive to the international customers.

Leveraging Technology:
Unlike traditional art galleries, Saffronart laid a lot of importance on leveraging technology to
improve operations. The online auction catalogue that Saffronart created, was a great source
of advertising for Saffronart.
Using technology, Saffronart ensures that only registered and verified individuals are allowed
to bid. Moreover, each bid for every work in every auction is logged and recorded. A
complete bid history is maintained. The online model and bid-tracking system ensured that
there was not auctioneer-generated fictitious bid.
The bid tracking system also gave Saffronart with unparalleled insight into buying behaviour
and patterns since the companys inception.

Revenue Source:
Auction
70% revenue of Saffronarts revenue comes from auction of art works. The auction process
happens online over a period of 2 days, in contrast to traditional auction houses where auction
happens over a few hours. This longer time slot gave the bidders more time to consider their
purchase and make bids, often allowing them to stretch previously established budget.
Three auctions were held every year and was main source of revenue for Saffronart.
Fixed Price Offerings
One of the major drawbacks of physical auction houses was that they did not have any steady
revenue stream. To hedge the risk of depending on a single source of income, Saffronart also
sold art online. However, the best works of art were sold through auction, as it generated the
highest profitability.
Contemporary Indian Art
Saffronart further, widened its portfolio of offerings by diversifying into Contemporary
Indian art. This segment found a very receptive audience among the young mobile art lovers
and quickly started contributing significantly to the revenue stream.

What have they done right?

The Vaziranis had ventured into a business space where the competition was weak. There was
no existing industry structure to mediate between artists and consumers of artistic creations.
By entering into the secondary market, they were able to influence the demand for modern
Indian art. Taking advantage of the internet boom, they were able to capitalize on the interests
of tech-savvy Indian diaspora. As the internet penetration increased, they were able to focus
on Indian market too.
The traditional art galleries do not put price on the art works, because they want to leave
room for negotiation. But, being transparent on prices and providing archives on the histories
of artists and their works, Saffronart gave a new dimension to the market. By opening the art
market to the whole population, Saffronart was able to bust the vulnerability of the customers
to information asymmetry. Though this process they were able to do three key things:
spotting opportunity, acting on it and legitimizing them (The new psychology of strategic
leadership by Giovanni Gavetti). They have succeeded in gaining the acceptance of the
external stakeholders. They have established trust with different art galleries and consigners
which helped them in sourcing quality art materials. By conducting exhibitions before the
auctions and later permanent galleries, they have established authenticity for the value they
offer to the customers.
In a market not well established and studied in depth, the Vaziranis tried to educate the
customers and thereby building reputation for honesty and professional integrity. This is
particularly critical when the market is not known for openness or transparency. By making
available the history of each bidder, they removed the suspicion of auctioneer-generated
fictitious bids. This gave way to the entry of a lot new customers who were otherwise
skeptical on the auction houses. The company also gained in studying the buying behavior
and patterns.

What they have done wrong?

By entering into a market space hitherto untested, the firm was able to create a new market.
The market for modern Indian art has widened and deepened. Though Saffron art had the first
mover advantage, the industry was not having any significant entry barrier. This led to the
entry of many new auction houses which posed a competitive threat to Saffronart. The
bargaining power of suppliers and customers also increased with the entry of new players.
Many galleries, even forward integrated into secondary market as auction houses. The initial
focus of the firm to establish trust and not enter into contacts with established galleries
translated into lower switching cost for the suppliers. This led to difficulty in sourcing of high
quality art works. Global majors like Christies and Sothebys had established partnerships
with major galleries and at the same time Saffronart tried to compete in terms of reducing
sellers commission, which is not sustainable for a long term.
While establishing network in the market, the Vaziranis played the entire role in trust building
endeavor, which later on posed a challenge to the firm during expansion. As the firm
expanded in business, they found it difficult to individually interact with each supplier or
customer. Thus there was a lack of development of a professional team as the face of the firm
apart from the Vaziranis. The promoters of the firm lacked the foresight to develop a
professional team as the business grew exponentially. This was evident when individuals
were reluctant to interact with other Saffronart employees other than Vaziranis.
The restriction of operations to the Indian geography translated in to a disadvantage to the
firm because other international players were able to source art works from outside India and
also access to customers outside India. The firm also did not take into account the cyclical
nature of the market and not diversified large enough instead of focusing into small number
of products and geographies.

What can/should they do now?

It is clear that Saffronart could no longer withstand the competition by confining itself into a
small family owned firm. They should make most of the position they had built so far and
take advantage of their reputation and capabilities. They should develop a team of
professional managers to take forward the operations into the next level of expansion.
Sourcing of art works should be developed into a separate organizational department instead
of depending entirely on the Vaziranis.
To ensure a steady supply of quality arts they should stretch out the possibility of exclusive
partnerships or contracts with the galleries or collectors. This could even open up the
possibility of backward integration, wherein Saffronart could collaborate with the galleries
and establish a foothold in the primary market as well. This would ensure supply of quality
art works and expansion of network with the artists as well.
Diversification in terms of new products as well as geography has become a necessary thing
for hedging the cyclical nature of the business. For an online auction firm like Saffronart
could easily diversify into jewelry and collectibles, real estate and antiquities. They could
also possibly consider expansion into south Asia in order to compete with the international
competitors.